If you have been watching the news or paying attention to the markets, you know that the global economy is not doing that well. Some tell take signs:
- real estate sales are down
- lay offs are happening around the global (and in our hometown Saskatoon)
- Interest rates remain low (they were supposed to be much higher)
- and finally, the stress test has been decreased
The above might sounds great, and really it is. There is just one problem… In a time when interest rates are low. House prices are low. And unemployment is at all time low – not a lot of real estate is moving. In order to stimulate the economy, the government has decided to ease up on the stress test.
The Stress Test:
The central bank’s five-year benchmark qualifying rate is now 5.19%, down from 5.34%. It’s the first decrease in the five-year fixed mortgage rate since September 2016, when it dropped from 4.74 per cent to 4.64 per cent, and increased steadily since.
The qualifying rate is used in stress tests for both insured and uninsured mortgages, and a lower rate means it is easier for borrowers to qualify.
“This 15 basis point drop in the qualifying rate will not turn the housing market around in the hardest-hit regions, but it will be an incremental positive psychological boost for buyers,” said Sherry Cooper, chief economist for Dominion Lending Centres in a statement. “It should also counter, in some small part, what’s been the slowest lending growth in five years.”
Is It A Good Thing:
This will solely depend on your personal situation. Everyone (and we do mean everyone) will be different.
The purpose of a less stringent stress test is to ease up on the downward pressure. However, this appears to just be prolonging what is inevitable. If people cannot afford homes if the interest rates goes up, what will this mean for your family?
If you were going to be strapped for cash and barley able to make your payments with the higher fees, this will not help you. The margins are not great enough to secure your debt to service ratios. In this situation, it might be best for you to hold off until interest rates drop a little but more and you have saved up a bit more money.
Who Does This Help?
As mentioned above, everyone is different. However, the slight easing of the stress test will allow those with the margins to buy a home, the ability to purchase a little more square footage if they choose.
15 basis points is not that substantial, but it will help some people.
There is also “speculation” that this is just the beginning. There have been musings that interest rates may be decreased in coming months as well.
No matter what your circumstance is let us know how we can help you. If you are buying or selling your home we can help get you into a home and situation that are best for you.
Gregg Bamford and Ryan Bamford